Banking Competition and Innovation

Boot and Thakor = Financial innovation and efficiency Black and Strahan = Impact of competition on liquidity Laeven, Levine, and Michalopoulos = Credit allocation improvements Jiang, Levine, and Lin = Transparency in banking

Standard errors = Measure of the accuracy of a statistical estimate Heteroskedasticity = Condition where variance of errors differs across observations Liquidity creation = The process of generating cash flow for lending Interstate bank deregulation = Lifting of restrictions on banking across state lines

Liquidity creation = The process of making more funds available for lending Bank deregulation = Removal of barriers for banks to enter new markets Gravity model of investment = A framework predicting costs associated with geographical distance Screening borrowers = Evaluating potential borrowers for creditworthiness

<p>Kroszner and Strahan (1999) = Empirical model of interstate bank deregulation timing Table 2 = Results of liquidity creation influencing deregulation Robustness tests = Evaluation of impact of clustering on results Validation test = Assessment of liquidity creation's influence on deregulation</p> Signup and view all the answers

<p>Late-1970s = Initial removal of regulatory barriers 1994 = Passage of the Riegle-Neal Act 1995 = Completion of the deregulation process Different years = States starting their deregulation processes</p> Signup and view all the answers

<p>Bank Competition (Distance Weighted) = Measures competition based on distance to banks Bank Competition (Distance and # of Banks Weighted) = Considers both distance and number of banks Bank Competition (Distance and GSP Weighted) = Incorporates distance and gross state product Liquidity creation index = Aggregated measure of liquidity produced by banks</p> Signup and view all the answers

<p>Gross state product per capita = Economic measure of average income in the state State unemployment rate = Indicator of joblessness in the state population Small firm share in the state = Proportion of small businesses in the state economy Capital ratio of small banks = Relative measure of financial strength compared to large banks</p> Signup and view all the answers

<p>Increased transparency = Enhanced monitoring of firms Competitive pressures = More efficient liquidity creation Regulatory barriers removal = Increased market entry of banks Dynamic deregulation process = State-specific banking competition</p> Signup and view all the answers

<p>Unit banking law = Regulations limiting banks to operate in single locations One party control = Situation where a single political party dominates governance Insurance selling by banks = Legal permission for banks to offer insurance products Democratic share in state government = Proportion of government positions held by Democrats</p> Signup and view all the answers

<p>Gravity model = Costs related to establishing bank subsidiaries Two-step method = Assessing competitive pressures on banks Time-varying measures = Dynamic assessment of bank competition Liquidity theory = Effects of competition on liquidity creation</p> Signup and view all the answers

<p>Improvement in credit allocation = More focused lending practices Financial innovation = Introduction of new banking products and services Increased bank lending = Expanded access to loan facilities Higher efficiency = Optimal resource utilization in banks</p> Signup and view all the answers

<p>Lag of one year = First level of retrospective measurement in data Lag of two years = Second level of retrospective measurement in data Lag of three years = Third level of retrospective measurement in data Average across banks = Computation method for determining state bank metrics</p> Signup and view all the answers

<p>Removing barriers = Facilitating out-of-state bank entry Reciprocal agreements = Collaborative state-level banking policies Dynamic process = Varied timing and paths of deregulation State-specific competition = Competition varies by geographic region</p> Signup and view all the answers

<p>Robustness test = Examines stability of results under various conditions Validation test = Checks reliability of identification strategy Empirical model = Framework for analyzing real-world data Statistical control = Adjusts for possible confounding variables</p> Signup and view all the answers

<p>Increased market competition = Lowered prices for banking services Greater liquidity creation = More funds available for investments Heightened transparency = Greater accountability from bank managers Enhanced borrower selection = Better risk management through screening</p> Signup and view all the answers

<p>Clustering at state level = Group errors by geographic location Clustering at year level = Group errors by time period Predictive analysis = Forecast future trends from historical data Regulatory reforms = Changes in laws dictating banking operations</p> Signup and view all the answers

<p>Liquidity Creation (Category Based) = Measure of liquidity generation based on specific categories Off-balance Sheet Liquidity Creation = Liquidity creation not recorded on the balance sheet Bank Competition (Distance Weighted) = Regulatory measure accounting for bank proximity State-year Fixed Effects = Controls for variations across different states and years</p> Signup and view all the answers

<p>Asset-side On-balance Sheet Liquidity Creation = Focuses on assets recorded in the bank's balance sheet Liability-side On-balance Sheet Liquidity Creation = Focuses on liabilities recorded in the bank's balance sheet Bank-level Controls = Accounts for specific characteristics of individual banks Category Based, excluding Off-balance Sheet = Measure of liquidity creation excluding off-balance sheet components</p> Signup and view all the answers

<p>Panel A = Only controls for state-year and bank fixed effects Panel B = Includes additional bank-level controls Column (1) = Uses Liquidity Creation (Category Based) as the dependent variable Column (4) = Uses Liquidity Creation (Category Based, excluding Off-balance Sheet) as the dependent variable</p> Signup and view all the answers

<p>Interstate Bank Deregulation = Reduced liquidity creation by banks Significance Level at One Percent = Indicates strong statistical relevance Three measures of regulatory-induced competition = All showed negative impacts on liquidity creation Decomposition of Liquidity Creation Measures = Analyzes individual components of liquidity creation</p> Signup and view all the answers

<p>LogSIZE = Natural logarithm of a bank's total assets Capital Asset Ratio = Proportion of capital to total assets GSP Weighted = Accounts for the gross state product in weighting measures</p> <h1>of Banks Weighted = Measures competition based on the number of banks in proximity</h1> Signup and view all the answers

<p>Liquidity Creation (Category Based) = Includes both on-balance sheet and off-balance sheet measures Category-based measures = Focus on specific categories of assets and liabilities Exploratory Examination = Investigates theoretical mechanisms behind observed patterns Maturity-based Measures = Examines liquidity creation across different maturity profiles</p> Signup and view all the answers

<p>Regulatory-induced Competition = Intensifies competitive pressures on banks Time-varying Measures = Reflect changes in bank-specific competitive conditions over time Negative and Significant Coefficient = Indicates a harmful effect on liquidity creation Category Based Exclusion = Focuses on liquidity without off-balance sheet considerations</p> Signup and view all the answers

<p>Results from Twelve Regressions = Indicates a comprehensive analysis of liquidity creation Interstate Deregulation Findings = Suggests a reduction in liquidity creation Impact of Competition on Liquidity = Reveals the negative correlation between competition and liquidity creation Panels Analysis = Assesses the effects of controls on different dependent variables</p> Signup and view all the answers

<p>One year before = 1.1325 Two years before = 2.6901 Three years before = -3.1792 Four years before = N/A</p> Signup and view all the answers

<p>Distance and # of Banks Weighted = -3.1792 Distance and GSP Weighted = 1.6169 Distance Weighted = 2.6901</p> Signup and view all the answers

<ol> <li>Distance and # of Banks Weighted = 0.3807</li> <li>Distance and GSP Weighted = 0.3186</li> <li>Distance Weighted = 0.4020</li> <li>Without Any Bank Level Controls = N/A</li> </ol> Signup and view all the answers

<p>Controls in column 1 = Yes Controls in column 2 = Yes Controls in column 3 = Yes Controls in column 4 = N/A</p> Signup and view all the answers

<p>One year before = (1.7960) Two years before = (2.0655) Three years before = (3.0066) Four years before = N/A</p> Signup and view all the answers

<p>Category Based one year before = 1.1325, (1.7960) Category Based two years before = 2.6901, (2.0655) Category Based three years before = -3.1792, (3.0066) Category Based four years before = N/A</p> Signup and view all the answers

<p>Liquidity Creation (Category Based) = Included Liquidity Creation (Excluding Off-balance Sheet) = Excluded State Weighted Liquidity Creation = Included None = N/A</p> Signup and view all the answers

<p>One year before = 637 Two years before = 637 Three years before = 637 Four years before = N/A</p> Signup and view all the answers

<p>Gross Total Assets = Total assets plus reserve for loan losses and transfer risk Liquidity Creation (Category Based) = Scaled by gross total assets excluding off-balance sheet activities Liquidity Creation (Maturity Based) = Classification of loans by their maturity Maturity Classification = Method of categorizing loans based on time to repayment</p> Signup and view all the answers

<p>Liquidity Creation (Maturity Based) = Classified by maturity instead of asset category Liquidity Creation (Category Based, excluding Off-balance Sheet) = Excludes off-balance sheet considerations Liquidity Creation (Maturity Based, excluding Off-balance Sheet) = Uses gross total assets for scaling without off-balance sheet Asset-side Liquidity Creation = Refers to liquidity generation from assets owned</p> Signup and view all the answers

<p>Allowance for Loan Losses = A reserve for potential losses on loans Transfer Risk Reserve = A reserve for certain foreign loans Off-balance Sheet Activities = Financial activities not included in the main financial statements Liability-side Liquidity Creation = Liquidity generated from obligations and liabilities</p> Signup and view all the answers

<p>Category Based = Scaled by gross total assets Maturity Based = Classified by the time to repayment Maturity Based, excluding Off-balance Sheet = Does not consider off-balance sheet liabilities Asset-side and Liability-side = Concerned with assets and liabilities respectively</p> Signup and view all the answers

<p>Liquidity Creation = The process of generating liquid assets Off-balance Sheet Activities = Activities that do not affect reported assets and liabilities Loan and Lease Losses = Potential losses in lending and leasing activities Asset Classification = Grouping of assets based on specific criteria</p> Signup and view all the answers

<p>Total Assets = Sum of all owned assets by an entity Loan Classification = Categorization of loans by type or maturity Equity = The ownership interest in a business Illiquid Assets = Assets that cannot be quickly sold or converted to cash</p> Signup and view all the answers

<p>Lewis Reserve = A reserve for potential loan losses Asset-side Reserve = Protection against asset-related risks Transfer Risk Reserve = Cushion for risks from foreign loans Allowance for Loan Losses = A safeguard against expected loan defaults</p> Signup and view all the answers

<p>Liquidity Creation (Category Based) = Focuses on asset categorization Liquidity Creation (Maturity Based) = Focuses on loan repayment periods Liquidity Creation (Maturity Based, excluding Off-balance Sheet) = Evaluates liquidity without off-balance sheet impacts All Liquidity Creation Methods = Aim to analyze overall liquidity provision in banking</p> Signup and view all the answers